Protecting Your Money in Forex Trading

Forex trading is not just about making money, but also holding onto the money you make and protecting it. You can make money in Forex trading. That is all good and well if you manage too. However, it is pointless even making money if you are just as good at losing it.

Lots of Forex traders lose. If you are in the industry and have at the very least made a few trades, you will know firsthand that losses are inevitable. They just happen. Remember that it is just a game of odds. You just have to bend the odds in your favor. Losses come and they can hit hard those who do not implement tactics to prevent them from being hit hard.

If you want to manage your money effectively in Forex trading, there are a number of factors that you should consider. First of all, make sure you only have an amount of capital in your Forex trading account that you can afford to lose. This will also help to ensure you do not let your emotions take hold later when placing orders. Then decide how much you are willing to risk on each of your trades, in proportion to your account size. You should certainly not be risking more than 5% of your total capital per trade, or at least according to many experienced Forex traders. Of course the percentage will differ for you according to your strategy. After you have decided the amount you are happy to risk on each trade, only then would you start thinking about how to protect yourself on each trade, once you have some basic tactics in place.

Now remember that you worked hard for your money, even if you can afford to lose the money in your Forex trading account. Limiting your losses is important, because money is money at the end of the day. You want to hold onto it. Ideally you want to grow it. Cutting your losses will help it grow bigger and faster.

Protecting your money in Forex trading is not particularly complicated. You may or may not have heard of stops, but a stop-loss is basically the way to go if you want to protect your money. A stop-loss simply closes off your trades once you hit a certain loss, so that your loss does not become any more significant. If the markets suddenly changed rapidly against one of your trades, a stop-loss would close the trade off early, to prevent a major loss.

Not only might you want to cut your losses, but also your profits. Take-profit stops will close your trades off once you hit a certain level of profit. The point in doing this, is to basically lock in your profits. Who knows what a market will do next? Once you have made a decent profit on a trade, a take-profit stop will close your trade for you automatically and add your profit to your account safely. With a long-term Forex trading strategy, you might even implement a trailing stop. This kind of stop is just like a stop-loss, except it adjusts itself automatically. If a certain trade seems to be profitable, your stop-loss will rise. This effectively locks in the majority of your profits without having to close the trade. This is particularly good if you are riding a long-term trend. You can do this manually of course, but trailing stops are great if you would like something automatic.

In conclusion, protecting your money in Forex trading is important. You should not only protect your money and profits, but also cut your losses in order to stay alive. Stop-loss and take-profit points are both used to help protect the money of Forex traders every day. Implementing these while having a solid understanding of money management, will allow you to effectively protect your money.